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Hedge Funds Just Stormed Into This Red-Hot Biotech Company

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 5.2% in the 12 month-period that ended October 30, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular S&P 500 stocks among the hedge fund investors tracked by the Insider Monkey team returned 9.5% over the same period, which provides evidence that these money managers do have great stock picking abilities. Even more to that, 63% of these stocks managed to beat the S&P 500 Index. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sarepta Therapeutics Inc (NASDAQ:SRPT).

Hedge funds are overwhelming bullish on Sarepta right now, as a net total of 17 of the hedge funds tracked in our system became shareholders of the stock in Q2. Among them were prominent healthcare-focused hedge funds like VenBio Select Advisor, Redmile Group, and Deerfield Management, though Phill Gross and Robert Atchinson’s Adage Capital Management remained the largest shareholder with 1.06 million shares. Despite suffering an October swoon like virtually every other stock, Sarepta’s stock has had an outstanding year, gaining over 150%. President and CEO Douglas S. Ingram seems convinced there are greater gains to come, as he spent just over $2 million buying 16,695 shares on October 30, which topped our list of The 25 Biggest Insider Purchases in October.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Phill Gross of Adage Capital Management

We’re going to view the recent hedge fund action surrounding Sarepta Therapeutics Inc (NASDAQ:SRPT).

What have hedge funds been doing with Sarepta Therapeutics Inc (NASDAQ:SRPT)?

Heading into the fourth quarter of 2018, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a 57% jump from one quarter earlier. By comparison, just 26 hedge funds held shares or bullish call options in SRPT heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SRPT Hedge Fund Ownership

Among these funds, Adage Capital Management held the most valuable stake in Sarepta Therapeutics Inc (NASDAQ:SRPT), which was worth $139.7 million at the end of the second quarter. On the second spot was venBio Select Advisor which held a $126.8 million position. Ghost Tree Capital, Sabby Capital, and Sectoral Asset Management were also bullish on Sarepta Therapeutics Inc (NASDAQ:SRPT), allocating a large percentage of their 13F portfolios to this stock.

With general bullishness amongst the heavyweights, key money managers were breaking ground themselves. venBio Select Advisor, managed by Behzad Aghazadeh, initiated the most outsized position in Sarepta Therapeutics Inc (NASDAQ:SRPT), valued at $126.8 million. Efrem Kamen’s Pura Vida Investments also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new SRPT investors: Eric Bannasch’s Cadian Capital, James E. Flynn’s Deerfield Management, and Bain Capital’s Brookside Capital.

Let’s also examine hedge fund activity in other stocks similar to Sarepta Therapeutics Inc (NASDAQ:SRPT). We will take a look at Hyatt Hotels Corporation (NYSE:H), Reinsurance Group of America Inc (NYSE:RGA), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Liberty Media Corporation (NASDAQ:FWONK). This group of stocks’ market valuations resemble SRPT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
H 38 1090875 3
RGA 20 573828 0
BIO 36 818059 -1
FWONK 39 2547180 0

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.26 billion. That figure was $1.12 billion in SRPT’s case. Liberty Media Corporation (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Reinsurance Group of America Inc (NYSE:RGA) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Sarepta Therapeutics Inc (NASDAQ:SRPT) is more popular among hedge funds. Hedge funds are buying up this stock in droves right now, as is the company’s own CEO, so Sarepta may be worth a closer look and possible place in your portfolio.

Disclosure: None. This article was originally published at Insider Monkey.

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